1H24 results are in line with market expectations
The company disclosed its 2024 semi-annual results, achieving operating income of 13.74 billion yuan, YoY +8.9%, net profit to mother of 1.52 billion yuan, and YoY +11.7%, within the previous performance forecast range, in line with market expectations. Among them, 2Q24 achieved net profit of 0.835 billion yuan, YoY +14.8%, and QoQ +22.1%.
By business, 1H24's operating income in the chemical fiber sector and new chemical materials sector both decreased by 0.11% compared to the same period last year, and the revenue of the basic chemical products sector increased by 42.38% compared to the same period last year. Considering that the average price of 1H24 spandex/adipic acid decreased by 13.9%/2.0% year on year, we judge that the company's production and sales volume has increased significantly, especially for adipic acid-related products. Due to falling prices, the gross margin of the above sectors decreased by 0.71/3.52/1.87ppt, respectively, compared to the same period last year. In terms of expenses, sales expenses and R&D expenses increased slightly, management expenses decreased by 25.44 million yuan year on year, and financial expenses decreased by 48.29 million yuan year on year. In addition, other earnings increased by 84.76 million yuan year over year, mainly due to VAT deductions.
Development trends
The price of spandex continues to decline, and we are concerned about additional production capacity in the future. Looking ahead, we count that the industry may add 0.288 million tons of production capacity in 2024 (including 0.15 million tons that Huafeng Chemical plans to launch at the end of '24 or early '25), and the industry's production capacity is still expanding rapidly. On the other hand, spandex showed a trend of not losing price. The average price of 1H24 spandex was 0.029 million yuan/ton, a year-on-year decrease of 13.9%. Supply is expanding, and the industry as a whole is in a state of weak profits or even losses. We estimate that due to cost advantages, the net profit of the industry's leading 1H24 spandex ton was 3,100 yuan/ton, down 23.2% year on year, and the industry as a whole was still at the bottom.
Adipic acid profits have narrowed again, and the pace of industry expansion has slowed down. In 2023, domestic adipic acid production capacity was 3.74 million tons, up 27.2% year on year, output was 2.3 million tons, up 15.4% year on year, and downstream consumption of adipic acid was 1.7475 million tons, up 13.5% year on year. The adipic acid industry added a lot of new production capacity in 2023, and there were new entrants, leading to increased competition in the industry. Looking at 2024, we expect the industry to add only two new devices, Hualu Hengsheng and Anhui Haoyuan, and the overall progress is lower than expected. On the other hand, high oil prices push up the price of pure benzene, leading to increased pressure on the cost of adipic acid. We estimate that the net profit of 2Q24 adipic acid tons, the industry leader, is ~ 900 yuan/ton, which is ~ 500 yuan/ton lower than 1Q24. Based on this situation, the profits of small and medium-sized enterprises are under pressure.
Profit forecasting and valuation
Our net profit for 2024/25 remained unchanged at 3.36/3.68 billion yuan. The current stock price corresponds to the 2024/2025 11 times/10 times price-earnings ratio. We maintain an outperforming industry rating and target price of 9.0 yuan, which corresponds to 13 times the price-earnings ratio of 2024 and 12 times the price-earnings ratio of 2025, with 20% room to rise compared to the current stock price.
risks
The price of spandex declined more than expected, and production safety was at risk.